Available AMT Credit

Step 1 in claiming the credit

This number is used for the normal AMT credit and the
refundable AMT credit.

The first step in determining the amount of AMT credit you
can claim is to determine the amount of available AMT credit.
This is your starting point under the normal rule for claiming
AMT credit, and also under the refundable AMT credit, which is
available to certain people who have long-term unused minimum
tax credit.

Important: This page
describes how to determine the amount of available AMT credit,
but this is not necessarily the amount of credit you'll actually
claim. This is just one step in the process of determining how
much credit you can claim under either the normal AMT credit or
the refundable AMT credit.

Two kinds of adjustments

Broadly speaking, when you pay AMT it is because of certain
items that receive different treatment under the AMT rules. For
example, if you claim itemized deductions you're allowed to
deduct state and local taxes. This deduction isn't allowed under
the AMT rules, so a deduction for this item may cause you to pay
AMT.

The AMT rules don't always completely disallow a tax benefit.
Sometimes they change the treatment so that income reported in
one year under the regular tax rules is reported in a different
year under the AMT rules. For example, the profit from
exercising an incentive stock option may be taxed in the year
you exercise the option under the AMT rules, but in a different
year when you sell the stock under the regular income tax rules.
Items that can end up in different years under the AMT rules are
called timing items.

Without the AMT credit, the income from timing items could
end up being taxed twice: first under the AMT, and in a later
year under the regular tax rules. The AMT credit is designed to
prevent this result, so it is allowed only for the part of your
AMT payment attributable to timing items. Any portion of your
AMT payment that relates to other items (such as the itemized
deduction for state and local taxes) is not eligible for later
recovery as AMT credit.

How the calculation works

In essence, the AMT functions as a parallel tax system in
which we determine how much tax you would have paid if a
different set of rules applied to your income. When we determine
how much of your AMT is eligible to be used as a credit in later
years, we actually do another parallel calculation under a third
set of rules: the AMT rules without the timing items. This tells
us how much AMT you would have paid without the timing items.

We compare the outcome of this calculation with the actual
amount of AMT paid for the year in question. If the actual AMT
is greater than the calculation without the timing items, we
know the additional amount is due to the timing items.

In practice, this calculation appears on Form
8801 for the year after you paid AMT. The IRS hasn't
taken my suggestion to calculate this number in the same year
you pay AMT. Calculating it on the following year's form can
create problems for people who change their filing status. For
example, two unmarried individuals may both pay AMT in one year
and then file jointly the following year. Form 8801 will not
provide the correct result in this situation.

Apart from this glitch — and the mind-boggling complexity of
the overall process — this method of calculation is generally
favorable to the taxpayer. Calculating the available credit this
way maximizes the amount that's considered attributable to
timing adjustments, and therefore eligible for later recover as
AMT credit.

Example: You pay $8,000 of
AMT for a year in which you have a $20,000 adjustment from
exercising an incentive stock option and a total of $20,000 in
other adjustments. It might seem logical that only half of the
$8,000 payment would qualify for later use as AMT credit.
However, the calculation described above shows that you would
have paid $2,400 in AMT without the timing item from the option.
That means the amount available to be claimed as AMT credit in
later years will include $5,600 from this year.

Carryovers

Available AMT credit that isn't used or otherwise absorbed
will carry over to the following year. In effect, your available
AMT credit for any given year is the amount created in the
preceding year (as a result of paying AMT that year) plus any
amount carried over from earlier years.

Using this number

You can claim available AMT credit under the normal rule to
the extent your regular income tax exceeds the tax calculated
under the AMT rules. To claim the refundable AMT credit you need
to continue with a more complicated calculation, where the next
step is to determine how much of your available AMT credit
qualifies as long-term
unused minimum tax credit.